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April 5, 2012

U.K. Manufacturing Unexpectedly Falls

February decline counters expectations of increase

Manufacturing in the U.K. surprised economists by falling 1% in February, when they had expected it to increase by a small margin. To add to the glum news, January’s numbers were adjusted downward as well.

Bloomberg reported Thursday that in a survey of economists, expectations were for an increase in manufacturing of 0.1% for the month of February. Instead, according to the Office for National Statistics in London, manufacturing fell 1% for the month, the most since April of 2011, and for the second month in a row. The numbers for January, which originally indicated an increase of 0.1%, were adjusted downward to show a fall of 0.3%.

While reports released this week showed accelerated expansion in services, manufacturing and construction, likely indicating a return to growth in the first quarter, the British Chamber of Commerce said that the recovery was “weak.” The Bank of England left its current targets unchanged despite the unexpected news, although there is some expectation that the next round of quantitative easing may be increased.

Howard Archer, an economist at IHS Global Insight in London, was quoted saying that factory production “clearly does still face a challenging environment.” In a Reuters report, Archer said, "We have a sneaking suspicion that the Bank of England is not quite yet done on the QE front. This reflects our belief that the economy is likely to stutter over the coming months in the face of still serious domestic and international headwinds and that a majority of MPC members may feel that a final small helping hand is in order.”

He continued, "The sharp drop in manufacturing output in February is a sharp reminder that the economy still faces a tough battle to generate decent sustainable growth. And while consumer price inflation may prove stickier than previously expected in the near term due to elevated oil prices, it should still eventually fall appreciably further as underlying price pressures are limited by extended below-trend economic activity, significant excess capacity and ongoing wage moderation resulting from high and, likely, rising unemployment."